A Sirius Play Ahead of Earnings

Apr.24.11 | About: Sirius XM (SIRI)

Sirius XM (NASDAQ:SIRI) should report 1Q11 earnings likely in the first week of May - no official date announced. Consensus is calling for revenues of $738 million, adjusted EBITDA of $169 million, and GAAP EPS of a penny. Net additions are expected to be 1.44 million, with SAC per gross add of $57 and APRU of $11.57.

We think SIRI will meet/beat these estimates but will be cautious on guidance due to the unexpected impact of the Japan crisis. Guidance is for 2011 net additions of 1.4 million, revenues of $3 billion, and adjusted EBITDA of $715 million. We think they maintain those estimates.

SAAR numbers have been strong during 1Q indicating that subscriber numbers are likely to come in ahead of expectations. The Japan earthquake should not have a negative impact in the first quarter but could have an impact in the subsequent quarters, in our view. Churn should remain stable as no meaningful competition has emerged to siphon subscribers from SIRI (reminds us of Netflix (NASDAQ:NFLX)). ARPU should come within expectations as we do not expect a fundamental shift out of the current price plans, although, as we have stated previously, we expect SIRI to raise prices by $1 in 2012. As such, we expect revenues to come in slightly ahead of the Street due to the higher than expected sub numbers.

SAC we believe will continue to trend down to current expectations and other cost items such as satellite transmission costs, programming and content, and customer care and billing should trend within Street expectations, leading to a slight beat on EBITDA and possibly a penny upside to EPS.

How to play the stock:

Sirius’ share price has increased 15% since April 1, following a similar pattern of rising sharply into earnings and then selling off a few days ahead of or after earnings.

This recent price movement is no exception and we should continue to see more movement in the stock into earnings. We think the stock could run another 6% before it sees a pullback. Investors could play that trade by buying into the stock and then selling right before earnings.

Disclosure: I am long SIRI.